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Better investment: stock market or farmland?

Michael Duffy, Iowa State University Extension economist, recently wrote an article to provide his latest analysis of which is a better investment, the stock market or farmland. He has done this in the past; therefore, this year’s article is an update.

The following is the way that Duffy began the article:

“Iowa farmland values have shown yearly increases for 11 of the past 12 years. The values remain at record high levels where they have been for the past nine years. Based on the Iowa State Univer­sity Farmland Value Survey, the 2012 estimated average farmland value in Iowa was $8,296 per acre. This was an increase of 23.7 percent from the 2011 estimate. Iowa land values have increased by double digits eight of the past nine years. This year marked the third consecutive year that values have increased more than 15 percent. The estimated land values have increased more than two and a half times since 2003.

“The composite value of the stock market, as measured by the Standard & Poor’s Index (S&P) average, has started recovering from the disastrous 2008 year. Even though the S&P lost 34 percent of its value between 2000 and 2008, its overall record has been impressive since 1990. Stock values rose from 328.75 in 1990 to a December 2012 close of 1,422.29, an increase of over 300 percent in spite of the decline in 2008.

“To determine which option provided the better investment, this article compares and contrasts the returns to farmland and the stock market since 1960. It also discusses some of the important fac­tors to consider over the next few years,” Duffy wrote as the opening to the comparison.

As he ended the lengthy analysis, he noted how all the inﬂuence on land prices and returns or the stock market is beyond a two- or three-page analysis. He wrote, “Sufﬁce it to say there is considerable uncertainty as one looks ahead. While uncertainty about the future is not new, there is a level of concern for both the land market and the stock market. Land and the stock market are different types of investments and assets.”

He noted, “Anyone contemplating the question of which is a better investment needs to know his or her goals.”

His last paragraph definitely summed up things up quite cleverly. “Land’s performance relative to the stock market over the past few years has been spectacular. Will this trend continue? Time will tell. Which is the better investment? As the old saying goes, timing is everything in the success of a rain dance.”